Paulo Rogerio Caffarelli – Chief Executive Officer Alberto Monteiro – Chief Financial Officer Bernardo Rothe – Head-Investor Relations

Tito Labarta – Deutsche Bank Carlos Macedo – Goldman Sachs Mario Pierry – Bank of America Jorg Friedemann – Citibank Carlos Gomez – HSBC

Good morning, everyone, and thank you for waiting. Welcome to Banco do Brasil's Fourth Quarter 2016 Earnings Conference Call. This event is being recorded and all participants will be in a listen-only mode during the Company's presentation. After this, there will be a question-and-answer session, at that time further instructions will be given. [Operator Instructions] This conference call is also being broadcasted live via webcast and through Banco do Brasil website at www.bb.com.br/ir, where the presentation is also available. Participants may view the slides in any order they wish. Before proceeding, let me mention that this presentation may include references and statements, planned synergies, estimates, projections and forward-looking strategies concerning Banco do Brasil, its associated and affiliated companies and subsidiaries. These expectations are highly dependent on market conditions and on the performance of domestic and international markets, the Brazilian economy and banking system. Banco do Brasil is not responsible for updating any estimate in this presentation. With us today, we have Mr. Paulo Rogerio Caffarelli, CEO; Mr. Alberto Monteiro, CFO; and Mr. Bernardo Rothe, Head of Investor Relations. Mr. Caffarelli, you may now begin.

Thank you. Good morning. First of all, I would like to thank you for being a part of this conference. I'll ask Alberto and Bernardo to say a few words for you before I start the presentation. Just tell you that, I'm really confident that Banco do Brasil is in the right path to reach the profitability compatible through its potential. We already took the first steps. 2016 was a tough year, but we have signs showing that economic improvement is on the way, allowing that our current measures became better results. I've been telling you about reaching our peers' profitability levels, I believe that we are already on the course and we will continue on it in 2017. Our net interest income will increase above the market average this year. Fee income growth will be between 6% and 9% in 2017. We are raising our customers' portfolio profitability with the digital channels' growth. Our goal is to end this year with 4.5 million individual clients in the digital model, which generates 44% higher margins than the traditional model. Technology is the present and the future for us. And I can assure you that Banco do Brasil has the best digital solutions in the country. For that reason, we call ourselves MySky digital, which means we go beyond the digital solutions currently provided in the market. I also would like to highlight that we have elected 2017 as the year of customer service, the customer best experiencing in the base of the relationship with desire. Moving on to expenses. I've done some important restructuring, closing branches, opening digital offices, process improvement and over 9,000 employees retirement. This will keep our administrative expenses under this year inflation. This is our main target because we intend to maintain the same value that you experienced last year. We are estimating something between 1.5% and 4.5%, but we intend to stay very near 1.5%. Provisions, we've also reduced between 30% and 44% compared to 2016. Another issue is capital. About capital, in just one year we grew 140 basis points. We see a consistent core capital growth quarter after quarter. In agribusiness, we estimate an increase in the rural portfolio between 6% and 9% with the expectation of having the best harvest ever. I believe so hard in this. I also see great opportunities for the capital market in 2017. As the macroeconomic scenario gets better, naturally companies will be more confident to look for funding the capital market in Brazil, debt and equity as well. With that said, I want to reassure my commitment with the ROE improvement. I said yesterday to the press that we are focused on profitability not in market share. This is very important because in a financial market you need to choose and we choose profitability, okay. 2016 related factors that impacted our results tend to decrease as Brazil resumes its economic growth and we consolidate all the measures to improve Banco do Brasil's efficiency. For finishing, I'd like to emphasize our commitment, my commitment, the Board's commitment and with all of our employees with these five pillars; profitability, efficiency, capital, credit recovery, customer experience in digital solutions. I can assure to you that Banco do Brasil will have best results in 2017. Thank you very much. Have a good day. Have a good weekend. Thank you. Bye-bye.

Mr. Alberto, you may proceed.

Good morning, everyone. I would briefly like to introduce myself before I go though the various details of our figures. I'm Alberto Monteiro. I had been a career Banco do Brasil banker until 2009, when I left to accept challenges externally. I was invited to rejoin Banco do Brasil as CFO and I took the position in January this year. With 26 years of service at Banco do Brasil and experience in this private sector, I believe I'm uniquely positioned in this role. My team and I are committed to assist Mr. Caffarelli, our CEO, in achieving the Bank's growth of increasing return on equity, improving efficiency. I would like you to handover to Bernardo Rothe to start our conference call. Thank you very much.

Good morning, everyone, and thank you for participating in our conference call. I'd like to start on page 3 of our presentation where we have the highlights for 2016. So starting with pre-tax and pre-provision earnings that increased by 7.3%. Our net interest income grew by 13%. Fee income, 6.8% growth. Administrative expenses totally under control and growing below inflation at 3.5% getting to a cost to income ratio reduction to 39.7%. In slide 4, we have the net income of the Bank, BRL8 billion the accounting net income and BRL7.2 billion the adjusted net income. On the bottom of the slide, we have the profitability ratios of the Bank. The adjusted ROE finished the year with 7.5%. The shareholders' ROE, where we took out from the denominator the BRL8.1 billion of debt that's considered capital that is not included, the cost of that debt is not included in the net income. So if you do that calculation, we get to 9.8% ROE. In slide 5, pre-tax and pre-provision earnings growing from 2014 to 2015 by 16.8% and from 2015 to 2016 by 7.3%, making 24.4% growth in two years. That’s all the work that we've been doing to improve profitability is reflected here in the pre-tax/pre-provision earnings. In slide 6, some market ratios. Earnings per share, we end the year at BRL2.57. Bloomberg projections based on sell-side analysts' estimates is BRL3.93 for the adjusted earnings per share. Dividend yields, fourth quarter 3.01%. The estimate for 2017 by Bloomberg is 3.16%. Price/earnings 12 months, 9.74 in the fourth quarter and the projection indicate 8.08. Price/book value of 0.9 for the fourth quarter and 0.95 is the estimation bias for 2017 by Bloomberg. Slide 7, funding, we've reached BRL613 billion in funding, a decrease of 8.3% compared to December 2015, basically in line with the decrease in the portfolio. The cost of this funding reached 63.7% of SELIC rates in December. Slide 8, the loan portfolio. We had a decrease of 11.3% to reach BRL708 billion, but I would like to highlight here the performance of the Agribusiness with a growth of 2.8% basically coming from a decrease in agri industrial. The rural credit grew by 8.6%, and the individuals growing 1.5%. And these two portfolios are growing participation in the total portfolio of the Bank. Slide 9, talking about Individuals portfolio, we are concentrating in lower risk lines of credit, that's where we see growth coming. So mortgages, that grew 9.5%, considering also the mortgage with companies; the market share is 7.9% for Individuals. And the payroll, we had 0% growth, a stable portfolio at BRL62.5 billion, market share of 22%. Salary loans grew by 3.5% to BRL19.3 billion. And auto loans is still decreasing, almost 26% decrease, reaching BRL6.2 billion. In terms of delinquency ratios, you can see that mortgage is 1.47%, a small growth increase from September 2016; payroll loans 1.31%, only 1 bp change; auto loans, still below 1%, at 0.98%; and salary loans at 2.88%. Slide number 10, portfolio of companies in the broad concept. We have a decrease of 19.2% to BRL294 billion. Most of this decrease came from these very small and small companies portfolio that decreased 23.8% reaching BRL68.7 billion and the rest of the portfolio had a decrease of 17.6%. Slide 11, Agribusiness, we have here the breakdown by Agro-industrial and the Rural Credits, as you can see most of the decrease came in the agro-industrial, pretty much in line with the behavior of the loans to companies. The rural credit grew by 8.6% in one year. We are still number one in the market share, big participation, almost 60%. And in working capital finance, we use mitigators reaching 64.2% of the total working capital. On the harvest 16/17, the finance of the harvest itself, we grew 8% compared to the harvest 15/16 with disbursements up to BRL47.1 billion. For the next harvest 17/18, we start with the pre-working capital for this particular harvest increasing the amount to be disbursed to BRL12 billion, BRL1.7 billion more than last year. In Slide 12, we start to talk about the credit quality, starting with delinquency ratios, we reached 3.29% at the end of December for the total ratio of the bank, comprises 5.83% in companies; 2.67% Individuals and 0.99% in Agribusiness. Slide 13, coverage ratios and the balance in provisions. The coverage ratio in December was 167%. The total provisions, BRL36 billion and in this quarter, we created supplementary provisions, that's BRL1.5 billion. Page 14, coverage ratios by segments. Our portfolio Abroad has a high coverage ratio of 400%; Agribusiness 228%; Individuals almost 200%; and we see some improvements in Companies as well as to 145%. Slide 15, average risk reached 5.52% in December, a slight improvement from September 2016. The Banking Industry is at 6.5%, meaning that we are way below the average risk in the market. And our portfolio is concentrated in risk AA to C, 90.8%. Slide 16, provision flow to loan portfolio, pretty much stable in the portfolio that we keep outside of Brazil. We are seeing increase in provisions for the portfolio in Companies, 2.21%. The Total also increased to 1.38%; Individuals 1.18%. On the Agribusiness, we had a decrease in the flow in this quarter. The total provisions, nominal value of provisions, in the quarter increased by 12.7%, pretty much coming from Individuals and Companies. Slide 17, NPL formation, we ended the quarter at 1.04%, almost stable to the third quarter 2016. And coverage of the NPL formation is 107%. In the bottom of this slide, we include in the past due transactions the portion of the renegotiated loan portfolio that was renegotiated after 90 days it's been past due, meaning if we did not renegotiate that particular loans, how much would be the NPL formation. In this case, we have a small increase to 1.13%, but it's smaller than within the second quarter and the coverage ratio almost at 100%. Slide 18, we have NPL formation by segments and the coverage ratio of the NPL formation by segments. Here you can see that Individuals has been stable in relation to September by 0.84% and a coverage ratio of 140%. For Companies, we have 1.73%, a small increase in relation to the third quarter, but below the highest level that we had in the second quarter, and the coverage ratio is 121%. For Agribusiness, it's pretty much stable with time at 0.4% and the coverage ratio here is, even though what we have done in the portfolio, was negative. In Page 19, we bring to you the renegotiated overdue loan portfolio. We had BRL3,800 million in new contracts in the quarter, a decrease of 35.6% in relation to the fourth quarter 2015. And in the right side, we have from this BRL3,800 million that we renegotiated, how long it was past due when we renegotiated? So you should have the breakdown by time of being past due. As you can see 14.4% in fact was not even past due, is recovery of written-off operations. And only 17% was past due over 90 days. The concentration here is, almost 40% comes from transactions past due from 0 to 14 days, by way the presentation shows 4 days, it is 14 days, sorry about that. And the growth in the - the amount of money that we're receiving in this portfolio, meaning amortization of principal, interest payments net of interest accrued in the period, grew in two years 92.1%. Just to compare, the write-offs grew by 59.4%, meaning that we are really increasing the level of what we are receiving in this portfolio. In Page 20, we have the NPL formation for this portfolio at 9.24%, a little bit higher than the third quarter but the lowest level in this series here. And the coverage ratio was 161.69%. Page 21, guarantees provided and provisions, almost BRL18 billion at the end of December of guarantees outstanding and this portfolio has BRL431 million in provisions. In Page 22, we have the net interest income. We grew 13% in 2015. Loan operations grew by 7.3%. And the funding expenses way below the growth of the loan operations. That explains the increase in spreads that we are going to show in the next pages. In Slide 23, the net interest margin grew to 5.06% in the quarter. The risk adjusted NIM, 2.57%. And in the fourth quarter, the average balance of our portfolio was BRL644 billion, a decrease over time during the year. Page 24, we have the spread by portfolio. Starting with Individuals, it increased to 16.6%; Companies increased to 6.34%; and Agribusiness also increased 3 bps to 5%; and loan operations to 7.98% in the total spread, the credit spread. Page 25, fee income, a growth of 6.8% in the year, coming mostly from checking account fees of 19.2%; asset management also with a good performance at 9.9%; and the insurance, pension and premium bonds at 7.1%. In Page 26, we have our network distribution. At the end of December, 66,000 points of sale all over the country. Our own service networks more than 16,000. Our total branches 5,440, this is before the close of the, what we announced that we are closing branches and so on, that's going to happen in 2017; I'll have more information afterwards. Total customers almost 65 million. And in total employees 100,000 and that number is already impacted by the retirement program that we announced last year. And outside of Brazil, we have presence in 24 countries with 38 points of service. In Page 27, the idea of improving customer experience through digital strategy. How we do that? It's a combination of human solutions with digital solutions, where we have the digital relationship manager serving clients through extending working hours from 8:00 AM to 10:00 PM for individuals and from 8:00 AM to 6:00 PM for companies, using all of the tools available in the market. Page 28, we bring the level of transactions by channels. You can see that 65% of all transactions processed by the Bank are concentrated in mobile and Internet. And at the mobile, we reached 10 million clients at the end of December; using the mobile, 10 billion transactions in 2016; 53.1% growth compared to 2015. Slide 29, the digital strategy evolution. The main information to provide you here is the increasing number of customers considered in the portfolio of high net worth. The idea is to reach 5.5 million customers, addition of 1.2 million customers through an addition of 27 digital service units, it's not branches, units. In the ESTILO segment, more 400,000 clients; in Exclusivo 212 offices and 3 million clients at the end of 2017, that's our goal. With that, we have the possibility of increasing the revenues from each clients, when we do that and through the digital these changes that we are showing here, we can improve revenues in 2018 by BRL1.7 billion, just to give an idea. In page 30, digital strategy gains. You can see that the profitability improves from 20% to 44%, when we shift the clients from the traditional banking to digital banking. Efficiency growth increased by 35% and satisfaction is 16% higher. All of that pleasant we showed so far gets us to slide 31, where we see the improvement in cost to income ratio growing from 41.6% in 2015 to 39.7% in 2016, a growth of 3.5% in the year for administrative expenses. In slide 32, some information about the reorganization that we are doing in the Bank. So we have the retirement program of 9,400 people joining. We've closed already 274 branches in 2017 up to two days ago. And we transformed 358 branches into points of service. In slide 33, the increase in our Common Equity Tier 1 since September 2016, reaching 9.6% in December 2016, and the total capital ratio is 18.5%. Slide 34, applying all the Basel III rules, we grew from 18.5% in total ratio to 18.11% after using our tax credits as well. For the Tier 1, capital it goes from 12.79% to 12.38%. Same behavior would happen for the current Tier 1. In slide 35, the guidance for 2016. We are pretty much in line with the guidance except for companies that we project minus 19% on the board of the guidance and we ended up with minus 19.2%. In the Agribusiness, that had a board of 4% and we reached 2.8%. In administrative expenses, we came better than the guidance at 3.5%. Slide 36, we have the guidance for 2017, with some changes and some indicators. So instead of ROE, we're giving you the guidance for the adjusted net income in billion, so it's BRL9.5 billion to BRL12.5 billion. The NII, we are considering now net of write-off recovery, so its 0% to 4%. The portfolio is the organic one, so we are not considering any more any portfolio that we acquired in this guidance, so it's 1% to 4%. For individuals, 4% to 7%, companies and Agro-industrial are now together, so companies including the agro-industrial portion of this minus 4% to minus 1%. Rural loans is only – separated the rural loans, that's another change that we've made, and the growth is 6% to 9%. The provision expenses now it's net of recovery of write-offs and in billions, so goes from minus BRL23.5 billion to minus BRL20.5 billion. Fee income growth of 6% to 9%; and administrative expenses growing from 1.5% to 4.5%. With that, we can open now for our Q&A. Thank you.

Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Mr. Tito Labarta of Deutsche Bank.

Hi, good morning, everyone. Thank you for the call. A couple questions. First, I mean, looking at your guidance for net interest income and loan growth, roughly the same 0% to 4% and 1% to 4%, so implying that margin should be relatively stable this year or maybe even up a little bit if you look at average balances. Just want to understand with interest rates coming down, just get a little better understanding of your sensitivity to that reduction in rate, and I assume your funding cost can improve, would that put some pressure on your loan spreads or I just want to understand a little bit better the sensitivity there? And my second question in terms of capital, considering you see good improvements in your capital ratio, I understand you have some deductions that you have to do this year, which can maybe offset some of that, but with the profitability improving, could you give us maybe where do you think you'll end the year at in terms of your capital ratios, particularly on the core Tier 1, would appreciate it. Thank you.

Thank you, Tito, for your questions. Starting with the behavior of NII compared to the loan growth, we don’t expect that the loan portfolio is going to have a linear performance in 2017. So it’s not really a growth all over the year. So if you look at the – what we expect in terms of average balance for our loans compared to 2016, it’s going to be a negative number. So even if we say that NII is going to real zero that means that we’re capturing spreads because the balance is going to be lower than last year. And that considers the reductions in SELIC and changes in regulation in Brazil and so on. Everything that we have and all the information that we have until now is considered in this guidance. So we still see room to capture spreads throughout the year and we still have 58% of our portfolio that was a contract before 2016. So even though we started the process of repricing in 2014, but prices in 2014 are lower than what we have right now. So we still have room to do repricing our portfolio to the level of interest rates that we expect throughout 2017, and that is what give us this guidance of 0% to 4%, growing more than the average balance of the portfolio. In terms of capital, the only goal, that I can tell you, is the one that we will be announcing, is 19.5% by beginning of 2019. But, yes, this last month we had another 20% deduction in ticketing, so from the level of core Tier 1 that we had at the end of December, two days later, it was lower because of the deductions, that’s considered in our capital plan and we are going to keep improving it throughout the year.

Okay, guys. Yes, that’s helpful, Bernardo. Thank you. Maybe just a couple quick follow-ups. So is it fair to assume that with the re-pricing of your loan portfolio that’s what offsetting the lower interest rates, you don’t expect pressure on spreads, is it also maybe just a lack of competition that you’re able to keep prices pretty high on loans? And then on the capital, is it then safe to – should we assume that capital remains flat, you say 9.5% by 2019; you are already 9.6% in the core capital ratio, so will the increase in profitability be offset by the deductions, is that a fair way to think about it?

Okay. In terms of capital, yes, we have to, 40% of the deductions should kick in; 20% this year already there and another 20% next year. So when we do that, we have to consider how we are going to grow assets, RWAs and so on, or not grow at all the level of profitability of the Bank and so on. So we are at 9.5%, we are pretty comfortable that we’re going to get there, and still managing growth of RWA and retaining profits, we are going to compensate the deductions that are going to kick in. On the spread side, as I mentioned, we still have loans at very low spreads in our books. So repricing them even with the interest rates in the market is going down, means that we can capture spreads. SELIC rates by itself in the medium term is neutral for us, because we have the impact of our funding base as a percentage of SELIC going down pretty fast and a lot of things that we have in the balance sheet that have a longer duration in the asset side that increase the spread right away with a decrease in the funding cost. We have things that reprice automatically like what we invest in the market. So the overall – the net of that SELIC by itself is neutral. And the SELIC spreads, they depend on competition. We are not seeing much competition in 2017. So not that much pressure in spreads, so we can capture increasing spreads through the repricing of the portfolio that we contracted before 2016.

Thanks, Bernardo. And sorry, just one other quick follow-up on the capital. I guess that 9.5% by 2019 is that also like a base. I mean, could you be above that level given profitability is improving, you are controlling growth. So that’s just the target, right. I mean, is it possible that you could be above that?

Yes. 9.5% is the minimum by our own standards, considering our own buffer. We can be higher than that and if we can be higher than that, we will be. 9.5% is not the end of the game. We are not stopping at 9.5%. We may even keep increasing over time. But the only goal that I can tell you is to be above 9.5% by the beginning of 2019.

Okay, great. Thank you very much.

Our next question comes from Mr. Carlos Macedo from Goldman Sachs.

Thanks, good afternoon gentlemen. I have a couple of questions. First question, asset quality, provision expense is a big decline there. I was looking for a little bit more color where the decline comes from. If you look at the vintage curves for SMEs and Individuals for 2016, it looks pretty grim compared to other years. So my guess is you are probably going to still have some provisioning to do for those portfolios early in the year, but obviously the corporate book should be where you have a lot of relief. Could you give us some color just to understand where the relief is exactly going to come from? Second, you’ve recently sold shares of Kepler Weber. There are other companies within your portfolio that you could sell in order to improve your capital. In Argentina, everybody is talking about the sale of Banco Patagonia. I’m not asking you to comment about any specific events, but should we expect to see more activity in that front in 2017 that would help bolster your capital ratio? Thanks.

Good morning, Macedo. Thank you for your question. In terms of the asset quality, if you could transfers the provisions – repeating something that I’ve been saying for a while, now, let’s say that’s the quality doesn’t improve at all in the very small and small companies portfolio, right, same quality, but even with some deterioration in terms of quality. But in a portfolio that is decreasing now almost 50% in two years, the CapEx of that portfolio generating provisions is increasing. So we are going to have lower provisions coming from that portfolio even though this portfolio in terms of quality should improve – start to improve only in the second half of the year, right. We don’t expect that – small companies portfolio behaves pretty much in line with the economy. As everyone expects the economy to pick up in the second half, then we should see improvements coming from this portfolio in the second half as well. So even after that, before this improvement starts, we may see the flow of provisions in portfolio reducing. So we expect provisions to reduce gradually from the level that we had in the third quarter last year over the year, being better at the end of the year.

Would it be fair to say though that the book of improvement comes from the corporate book? Given you are not going to have a large company – or hopefully are not going to have these many large companies defaulting with the improvement in the economy?

Yes. The book of provisions that we’ve been making over the time comes from the Companies portfolio. So the improvement comes from the Companies portfolio as well. So about assets, [indiscernible] any noncore assets that we have, they are available for sale, let’s say. We can sell. People will know that bankers are all the time knocking on our doors and send proposals, because we have been saying that for a while. So if there is a good proposal, something that makes sense for us, as we have in the case of Kepler Weber, we may sell, right. So it depends on the market and it depends on us. We are not close to sell non-core assets at all, what we are not going to sell, whatsoever, is our asset manager model [indiscernible] doing IPO of anything that is very linked to our strategy of the core business.

Thanks, Bernardo. One more thing, it’s general and maybe put you in the spot, but can you confirm that there is a process undergoing for the sale of Banco Patagonia in Argentina?

What I can tell you is that, what we announced in the material fact last year, that we’re analyzing the possibility of doing a follow-on in that particular bank, in the New York Exchange and the stock market in Argentina.

Perfect, thanks.

Thank you.

Our next question comes from Mr. Mario Pierry from Bank of America.

Good morning everybody. Let me ask you two questions, both of them are related to your guidance. The first one is related to your guidance for expense growth, okay. The way we’re doing the numbers here, we see that you have total expenses in 2016 looking at personnel and administrative of about BRL32.8 billion. At the same time, you announced cost cutting measures totaling BRL3.1 billion, this is related to your early retirement plan of BRL2.3 billion and branch closures of about BRL750 million. So when I look at your guidance of expenses growing 1.5% to 4.5% and if I take in consideration your cost cutting, what I see is that you’re guiding for expenses to grow 12% to 15%. So I wanted to understand here, what am I missing? Why or my feeling is that your guidance here is being too conservative or maybe the cost cutting is not as high as you originally guided for? The second question is also related now to your provisions guidance of BRL23.5 billion to BRL20.5 billion. If I look, you had provisions of BRL27 billion in 2016. If I consider some extraordinary provisions that you made throughout 2016, related to Sete and related to Oi, related to the supplementary provisions that you made in the fourth quarter, I estimate that you had BRL4.7 billion in non-recurring provisions. So this alone would bring your provisions in 2017 to BRL22.3 billion, which is roughly the midpoint of your guidance. So it also seems to me too conservative, it’s almost like you’re not expecting much of an improvement in provisions in 2017. So these are my questions.

Okay, thank you. Good morning, Mario. In terms of expenses, if you look at only personnel expenses, the impact that we would have in terms of the increasing salaries given the agreements with the unions in Brazil will be a 8.4% growth in the personnel expenses for eight months of this year in relation to last year, and then another 5.7% is INPC plus 1%, so let’s say 5.7%, whether that tool is once again at that point. So we would have an increase in cost with personnel at a high level. We are compensating that with the 9,000 people that are leaving. So if you look at what would be a guidance for personnel expenses. I would say to you that, zero would be inside that guidance, if one compensates the other. The other than administrative expenses, part of this BRL3 billion that you mentioned is not going to happen right away, they are going to happen over time. So we cannot consider that we capture everything this year. We are going to capture that in 2018, full in 2018. And we have been growing these particular parts of the expenses way below inflation for a very long time. And some of these expenses, we have agreements that we are negotiating not on a yearly basis, but two years, three years and so on. So we have to look at inflation, not inflation of 2017, but the inflation of 2016 and 2015. So you put that together, the pressure is the big one. We cannot consider in our forecast that we’re going to manage to reduce whatever we have to increase in terms of agreements being renegotiated in 2017, but what level we want because it depends on negotiations. So it’s something that we have to work through the year, but the guidance gives you our best forecast at this point in time.

Just to go back what you said on the demand expenses, you provided a slide here showing that you already closed a significant amount of the branches that you’re expecting. So why wouldn’t the bulk of this cost savings be realized in 2017?

First of all, the portion of this BRL750 million related expense through the branches is BRL300 million. And we are closing the branches now, but we still have costs with these branches going through in the first half. So that’s why the full impact of these savings is in 2018 not in 2017, so it’s going to happen overtime, over the year. So part of these costs are going to be started to be saved afterwards, although we have already closed the branches; there is no one working there and so on, but still have cost to bear and see it’s fully out of our books, let’s say. That’s the thing. So it’s not fully in 2017. That’s the point.

Just sorry, just to stay on this topic, but at the same time, you’re showing there’s digital evolution of the Bank and on how you’re processing more transactions. I would think that that alone would generate some cost savings for you as well. My point here is, when I look at your private sector peers, they’re guiding for similar growth in 2017 as you are. However, you came out and you provided us with cost savings measures, branch closures, laying off 9,000 people. So I’m just – it just seems to me that your guidance is too conservative?

I can tell you because – by the way, it was mentioned in the Portuguese conference call, that our goal is to keep working on expenses, to bring that expenses down to be closer to the board on the guidance, and if we can even below the guidance. That’s part of the job that we have to do now. It’s not in our projections, right now, but it doesn’t mean that we are not going to work to bring that below even the guidance, if we can, right. So the basic guidance is for today based on the best projections that we have. That doesn’t mean that we are not going to work to improve that, to have even better results, as we have been doing over the years. If you look at what we did in the last two years in terms of guidance for administrative expenses, we delivered below the guidance in two years in a row. So we are going to work to get there. We are going to do our best job to get there. But the best guidance that I can give you right now is 1.5% to 4.5%. In relation to – if you compare to our peers, unfortunately we cannot just go there and start to fire – we don’t do that. It’s not unfortunate. In fact, we don’t fire people. We treat them differently. We have different ways of addressing the number of employees that we need. So we don’t need to announce things, they do, every day we have to do things differently here. But if you look at the behavior of their number of branches and number of employees, it’s not that different from us. Yes, they are doing their job as well. Right job, I don’t want to comment on competitors, but they are doing their jobs, as everyone has to do their own job. We are doing on ours. And our job is best. Moving to provisions, the projections that we have, of course, we want also to have lower level of provision than what we are guiding the markets right now. It’s part of our job to keep everything on track. We believe that the guidance that we are giving you reflects the behavior expected of our portfolio. And there is a big improvement in relation to last year. This year, you cannot convert any big cases that may happen. I’m not saying it’s going to happen, I believe we have pretty much everything mapped out already. But things are going to develop, we have to have room to allow us to cover any thing that – some things that are not in our projections right now. So we believe that’s the right guidance to give to you, given that 2017 is a transitional year, we are going to see things much better in 2018 that’s what we expect. But 2017 is zero-year recovery, a small recovery, if you look at Focus Report, what you expect in terms of growth in GDP in Brazil, it’s 0.48% now. So it’s a transitional year. We are going to go through this transition, improving gradually the level of provisions that we have in our books, gradually from the third quarter. Okay.

Okay. Just to stay on the provisions then, really quickly, when we think about recoveries, I would imagine that your recoveries would be much higher in 2017 than they were in 2016. Is that part also – is that already incorporated on your guidance?

Recoveries, we had a record of recovery last year. So it’s not that easy to repeat every year a record, right. So we consider that we have a feasible level of recoveries for 2017 in our guidance.

Okay. I guess, right, the record level on recovery is because you have a record increase in NPLs as well, so, I would imagine with the economy coming back that you might be able to have a better year in 2017, but okay, my overall feeling here – what I just wanted to clarify is this, I felt like your guidance is on the conservative side, I wouldn’t be surprised if you deliver better than you expected this July. But thank you very much.

I can guarantee you that we are trying to make you right.

Our next question comes from Mr. Jorg Friedemann with Citibank.

Thank you for taking the question. Actually, just one question here, related to your position of capital. The Bank continued in this quarter to optimize its capital management and once again risk-weighted assets as a percentage of total assets decreased quarter-over-quarter, reaching now 44%, which is the lowest level versus Brazilian large banks. My question is related to the decline of the portfolio originated abroad in this context. As you showed in slide 8, this portfolio declined approximately 11% quarter-over-quarter. So how much of this decline was due to the strengthening of the reai and at what level do you think this portfolio should stabilize going forward? In addition, it will be great if you could provide also some color on the average yield of this portfolio? Thank you very much.

Okay. Thanks for your question. First, what we have outside of Brazil, I believe the market has already – heard that from our CEO, that we’re focused on Brazil. So we used to do a lot of transactions outside of Brazil with companies with no link to Brazil and so on. So that’s not our focus anymore. There is a decrease coming from concentrating our business to have the Brazilian flavor, dealing with companies that operate in Brazil, foreign companies that operate in Brazil, Brazilian companies operating in abroad, financing trades and so on and so forth. That generates a decrease in portfolio for sure. Part of it is, of course, is the FX rates. So the portfolio decrease in dollar terms, but also decrease in real terms because of the shift from 3.9% in the rates to 3.2%, if I’m not wrong at the end of the year. So part of it is how the change in the value of the reais against dollars, part of it is a shift in terms of strategy for the branches that we have abroad. I can give you the number exactly how much is the foreign exchange impact later on.

Our next question comes from Mr.Carlos Gomez from HSBC.

Hello, good morning. I have two questions. The first one, if you could give us an update on the situation at the Banco Postal. And whether that is something that you would still pursue? And also whether not doing Banco Postal is incorporated in your cost guidance, although it probably doesn’t have a decrease in other income? And second, as you have read the speculation about the possibility of the large remaining state bank Banrisul, perhaps, undergoing a change in ownership. We understand that does not depend on you, but you focus on Brazil. How would management look at the possibility of the combination with Banrisul. Is that something that you would look at favorably or you prefer to concentrate in your current cost control? Thank you.

Good morning, thanks for your questions. In terms of the Postal Bank, the agreement with the Postal Bank was extended for three years at the end of the year. So we are still using the Postal Bank, they are still operating as points of service of Banco do Brasil. We have a change in some details in the agreement, so the cost of using the Postal Bank decreased. Bigger portion of it now, it depends on performance. So the fixed portion of this is only BRL5 million per month. Everything else depends on their performance, so we paid for what they do. So there is a decrease in terms of cost for the Bank overall. But they are still serving clients for Banco do Brasil. They are still doing business, selling products, processing the transactions and so on for us. So it’s ongoing. We renovated that agreement for three years in December. In terms of what may happen with Banrisul, it’s not my place to comment. We are looking at the market overall all the time, but we are concentrating in doing things organically in Banco do Brasil.

This concludes today’s question-and-answer session. I would like to invite Mr. Bernardo Rothe to proceed with his closing statements. Please go ahead, sir.

I just want to thank you all for participating in our conference call and to put my team at your disposal to answer any further questions you may have. Please feel free to contact us, anything that you need. Thank you very much and see you in the next conference call. Bye.

That does conclude Banco do Brasil conference call for today. As a reminder, the material used in this conference call is available on Banco do Brasil Investor Relations website. Thank you very much for your participation and have a nice day. You may disconnect.